Exam 1 Flashcards
Insignificant Influence
<20% ownership
Use either Fair Value Method if you can calculate Fair Value or Cost Method if no readily determinable Fair Value
Significant Influence
> 20% ownership
Use the Equity Method
Control Influence
> 50% ownership
Consolidation is required
Can we record profits on intercompany transactions?
No, because they are not at arms length
What do we want to defer to future periods in intercompany transactions?
Gross Profit that remains in the ending inventory of the buyer at the end of the period
Gross Profit in Ending Inventory Equations (READ)
$GP in end inv
Total $GP in intercompany sales * % remaining in end inv
GP% * Sales in end inv (GP in end inv/$ in end inv = GP%)
(GP%* Total Sales = Total GP) * % remaining in end inv
AFTER ALL OF THESE WE MULTIPLY GP IN END INV BY INVESTOR OWNERSHIP %
What account is AAP included in for companies with Significant Influence?
Equity Investment
Deffered Gross Profit Equation
GP left in End Inv * GP% * Ownership %
What is the JE for Deferred Gross Profit?
Debit Eq Inc
Credit Eq Inv
For stuff with Significant Influence, what do we need to watch out for when dealing with Dividend amounts?
WORDING!!!
For Significant Influence (not consolidation) what is the JE when using amortization on a patent or similar account?
Debit Eq Inc
Credit Eq Inv
When acquiring assets, what do we record them at?
Acquisition date fair value
Goodwill equation if we are given fair value of Investee Net Assets
Purchase Price - FV of Investee Net Assets
Goodwill equation if given book value and fair value differences
Purchase Price - BV of Net Assets = Premium. Then do A Entry equation with premium as amount in Eq Inv
Net Asset Acquisition JE’s
Debit Assets
Debit/Credit Goodwill
Credit Cash
Credit Contingent Consideration if applicable
AND
Debit Exp (Transaction Costs) if applicable
Credit Cash if applicable
Stock Acquisition JE
Debit Eq Inv
Credit Cash
Credit Contingent Consideration if applicable
AND
Debit Exp (Transaction Costs) if applicable
Credit Cash if applicable
For which acquisition type do we do consolidation?
Only stock acquisitions
E JE
Debit Com Stock
Debit APIC
Debit Ret Earn
Credit Eq Inv
A JE
Debit Increased Assets and Decreased Liabilities
Plug Goodwill
Credit Decreased Assets and Increased Liabilities
Credit Eq Inv by Premium (Purch $ - BVNA)
What is the total value of the subsidiary at acquisition date?
Purchase price since its the fair value of total net assets
Equity Method C JE
Debit Eq Inc
Plug Eq Inv
Credit Div
D JE
Debit Op Exp
Debit Goodwill Imp Loss if applicable
Credit Asset being depreciated or amortized
Credit Goodwill if applicable
CEAD Equations explained
C - Eliminates the CHANGES to Eq Inv during the period
E - Elimination of BOY Sub Stockholders EQUITY
A - Reclassification of BOY ACQUISITION ACCOUNTING PREMIUM (AAP)
D - Record DEPRECIATION/Amortization of BOY AAP
Goodwill Impairment Entry
Debit Eq Inc
Credit Eq Inv
Using NI, AAP Amort, and Goodwill Imp, how do you find Eq Inc?
Sub NI - AAP Amort - Goodwill Imp = Eq Inc
Under Cost Method, what is the balance in Equity Investment?
It is only the original purchase price, everything else gets moved around in different accounts
Under the Cost Method, in what account are Dividends received put into?
Dividend Income
Under the Cost Method, which CEAD Equation changes?
The C equation
How do we find the amount needed for the Cost Method ADJ entry?
The Change in Sub RE - Total AAP Amort
Cost Method ADJ Entry
Debit Eq Inv
Credit Ret Earn
Cost Method C Equation
Debit Div/Eq Inc
Credit Div
Under the cost method what Entries/Equations come first?
ADJ
then do CEAD
Under the Cost Method what is Equity Income equal to?
Sub Dividends
Cost Method Consolidated Net Income Equation
Parent NI - Sub Div + Sub NI - AAP Amort
Consolidated Retained Earnings Equation
BOY Parent RE + Parent NI - Parent Div (+ ADJ Entry if Cost Method)
Consolidated PPE Equation (if PPE part of AAP)
Comb PPE + BB PPE in AAP - Total Dep of PPE in AAP
